DANIEL TSEGAIUniversity of Bonn, Economics and Technological Change, Germany
Using survey data from the Volta basin of Ghana, this article examines the effects of rural out-migration in the source community. Explicitly, it investigates the direct and indirect effects of migration from the rural areas on the income sources of the households that send out-migrants and it measures the various and sometimes competing effects of migration on the sending households and discuss policy implications. The study used the Zero Inflated Poisson (ZIP) model to get the predicted number of migrants in a household. Iterated Three Stages Least Squares (3 SLS) method followed by a bootstrapping procedure was employed to determine and measure the net effect of the migration in the income sources of households. The empirical study demonstrates that the loss of labour to migration has a negative effect on household farm income in source areas. However, we also provide evidence that remittances sent home fully compensate for this lost- lbour effect, contributing to household incomes directly and also indirectly by stimulating farm and non-farm self employed production. Consequently, this finding presents evidence in support of the New Economics of Labour Migration (NELM) hypothesis that remittances loosen constraints on production and the imperfect market environments characterising rural areas in developing countries. Hence, if government wants to decelerate the flow of migrants out of rural areas, they may need to interfere in credit markets by reforming the formal rural credit system to increase households' self-employed production efficiency and decrease the tendency to send migrants out into the labour force mainly to finance these activities.